3 - ASEAN's international trade and foreign direct investment, commercial policy reforms and production networks

Summary

ASEAN's international trade in goods

ASEAN's approach to economic cooperation and integration focuses on the need to reduce barriers to intra-regional trade and investment so as to compete more effectively in international markets. What is needed is a more competitive regional economy in the context of an increasingly competitive global one. This makes ASEAN unique compared with economic integration efforts elsewhere, such as in the EU and Latin America, where the focus has been more on increasing intra-regional trade and investment as a percentage of the total.

Figure 3.1 shows that intra-ASEAN trade as a percentage of its total trade has remained fairly constant in the range of one-fifth to one-fourth over the past decade (2001–12), when economic integration programmes began to be implemented in earnest. In contrast, ASEAN's trade with China has almost tripled from 5 per cent to 13 per cent from 2001 to 2012, reflecting in large part the rising participation in regional production networks (particularly in electronics) along with China. China's rising importance has come at the expense of the traditional US and European markets, whose share fell from about one-third to one-fourth, and Japan. Note, however, that ASEAN is still dependent on these traditional OECD markets for the exports of final goods, when intermediate trade is separated from final demand in the trade data (see, for example, ADB 2008).

At the country level, the importance of the ASEAN market varies considerably from economy to economy, as shown in Figures 3.2a and 3.2b. Laos and Myanmar are highly dependent on trade with ASEAN, as has been Brunei (though its importance has been declining since the beginning of the twin crises). Trends in the other economies are mixed. However, it is noteworthy that the ASEAN market share for each member economy tends to be above one-fifth for all economies save Vietnam, whose share has been about 18 per cent over the past few years (having fallen since Vietnam joined the World Trade Organization (WTO) and the normalisation of trade relations between Vietnam and the USA).